Andrew Simms used to work at the New Economics Foundation – Not Economics Frankly – so therefore obviously he knows nothing about economics. But we have a useful and interesting proof of this contention today.
He tells us that no one knew that HS2 was a crock.
Something is killing conventional economics and it’s probably an inside job. Reliance on abstract mathematics and absurd assumptions has brought the discipline into disrepute, even if politics and policy are guided by the ghosts of its teaching. Nobody was surprised recently to learn that the price of the overdue and over-budget HS2 high-speed rail project could rise by another £30bn. People were surprised to learn, however, that in the cost-benefit analysis used to justify the original project, planners assumed that no passengers work while on a train. That made the times savings on the new line look more valuable than they really were.
This therefore proves that neoclassical economics is wrong and we can all go dance with the unicorn farts instead.
Except all it actually proves is that Andrew Simms is remarkably ignorant of the subject of economics. Even, remarkably unobservant when people try to tell him things about it. For someone has been making exactly this point for some years now:
Having lots of shiny new infrastructure sounds like a really cool idea. Put the unemployed to work and get some asset that will enrich us all for the next 50 years or so. However, whatever it is that we do we do have to do a cost benefit analysis. How much is it going to cost us to do something and what is the benefit we get from having done so? And it is here that the case for HS 2 fails I’m afraid. Such a cost benefit analysis was done for the train line. As is normal in these things it is the saving of time that contributes the greatest benefit. The assumption is that if you’re locked up in a train carriage you cannot be doing productive things like meeting people, working, talking. Thus the time spent on a train is valued as a cost, a cost equal to the value of your time when you are working. This has the obvious effect of making the time of some senior businessman sitting in first class worth more than the kiddies on awayday tickets in cattle: but so be it, that’s just the way the sums are done.
That’s from 2012.
A rough rule of thumb is to look at what people would be paid if they weren’t travelling. Not perfect, by any means, but it’s a reasonable enough approach. Or rather, it used to be reasonable enough, but now it isn’t; which is the problem with the HS2 calculations. Take our first class passenger: no one else can afford the damn seats so we assume that it’s business travel on expenses. When they’re in the office doin’ stuff they get paid according to the value of their output. (yes, yes, I know, but please, this is economics we’re talking here)
When they’re on the train they can’t be doin’ stuff. So, if their time in the office is worth £50 an hour (say) then their time on the train is a loss of £50 per hour. Halve the journey time and we’ve thus created a value of £25 per passenger per trip. This forms part of the “value added” benefits of such transport projects. No, really. This is the way that the numbers are worked out, even though those aren’t the correct numbers. And this is how HS2 comes to have a £19.8bn “value” ascribed to travellers. Of that, £12.6bn comes from those business travellers: the remainder from lowly commuters and leisure travellers. That’s offset against all of the costs, along with the other benefits, and is the major reason why HS2’s cost benefit analysis shows that the benefits are higher than the costs. So, let’s go build the train set.
But, as the perceptive among you will note, people actually are doin’ stuff while on the train these days. We’ve got this whole communications revolution that large numbers of you dear readers have been working on for the past 15 to 20 years. We can make phone calls from trains these days, imagine that! We can work on spreadsheets because we’ve got laptops. We can write emails firing people because we’ve got mobile connectivity on our laptops. We can actually work while spreading out in a first class seat.
That’s from 2013.
To understand the upside of something like HS2 we have to try and work out the value of getting someone somewhere faster. So, we assume that people trapped in a tin can can’t do anything other than contemplate the coffee as they hurtle through the countryside. Thus getting them there faster allows them to have more time to do something economically valuable like work. This is — and no kidding at all — how it is done. First class passengers have their time valued at some number — they can afford the ticket so we assume they produce more when they’re working. The rest of us have our time valued at less for we’d be less productive when we get there, the time saved thus has a lower value. Leisure travel is valued at the value of leisure time. Tot up all the value of all the hours saved and we’ve the economic value of the faster train. This really is how it is done.
But note that underlying assumption – that we can’t do anything while travelling. That’s not true at all now, thanks to mobile internet. Even at the speed it works on trains we can work. Or even contemplate spreadsheets on our laptops.
That is, a ghastly neoliberal, powered entirely by neoclassical economics, has been telling Andrew Simms what he’s only just discovered for well over half a decade now.
And this means that neoliberals and neoclassical economics are wrong, does it? Or that Andrew Simms needs to be just that tad more observant?